P18-3 (LO2,3,4) (Allocate Transaction Price, Discounts, Time Value) Grill Master Company sells total outdoor grilling solutions, providing gas and charcoal grills, accessories, and installation services for custom patio grilling stations.
Instructions
Respond to the requirements related to the following independent revenue arrangements for Grill Master products and services.
(a) Grill Master offers contract GM205, which is comprised of a free-standing gas grill for small patio use plus installation to a customer's gas line for a total price $800. On a standalone basis, the grill sells for $700 (cost $425), and Grill Master estimates that the standalone selling price of the installation service (based on cost-plus estimation) is $150. (The selling of the grill and the installation services should be considered two performance obligations.) Grill Master signed 10 GM205 contracts on April 20, 2017, and customers paid the contract price in cash. The grills were delivered and installed on May 15, 2017. Prepare journal entries for Grill Master for GM205 in April and May 2017.
(b) The State of Kentucky is planning major renovations in its parks during 2017 and enters into a contract with Grill Master to purchase 400 durable, easy maintenance, standard charcoal grills during 2017. The grills are priced at $200 each (with a cost of $160 each), and Grill Master provides a 6% volume discount if Kentucky purchases at least 300 grills during 2017. On April 17, 2017, Grill Master delivered and received payment for 280 grills. Based on prior experience with the State of Kentucky renovation projects, the delivery of this many grills makes it certain that Kentucky will meet the discount threshold. Prepare the journal entries for Grill Master for grills sold on April 17, 2017. Assume the company records sales transaction net.